US Federal Reserve to Go Mobile for Non-Account Holders

A recent survey conducted by Knowledge Networks for the US Federal Reserve Board points to an interesting solution for people who lack access to a bank account, or “unbanked” consumers. Mobile phones may be the link for those with lower incomes to powerful financial tools that were traditionally offered only to those with accounts at brick-and-mortar banks.

The hope is to expand the existing technology to fit the needs of those who need to monitor savings and spending.

Who Might Be Affected the Most

Eighty-seven percent of the population of the United States owns a mobile phone, and more than 20 percent already use their smartphones for banking. This trend is especially high in minority communities and low-income neighborhoods, where access to computers is limited.

These same groups were revealed by the survey to be those more likely to turn to payday loans or check-cashing services due to difficulty obtaining a traditional bank account. Ten percent of those without bank accounts used mobile banking. The high fees involved in payday loans and cashing have alerted consumer advocates due to their predatory nature and forced authorities to seek solutions.

The Fed’s Potential Benefit Offerings

While most mobile banking customers use their phones to check account balances or monitor recent transactions, the Fed seeks to provide more expansive offerings. While Google and other companies have developed mobile payment applications such as Google Wallet, the government may soon be taking cues from their most successful aspects. Mobile payments both to and from consumers may eliminate the need for third-party fees and processes without the need for a traditional bank account.

Financial planning tools including spending tracking, low-balance alerts, and other considerations are being considered, according to Fed Board governor Elizabeth Duke. These amenities would also serve the “underbanked” – consumers who fall between those without bank accounts and those who use banks for all of their financial needs. Twenty-nine percent of consumers have a bank account but still rely on payday loans or check cashing from time to time.

The unbanked and the underbanked seem to already have the means to access such technology. The Fed’s survey revealed that 64 percent of unbanked and 91 percent of underbanked consumers have a mobile phone. Smartphones are held by 18 and 57 percent respectively. With mobile banking expected to expand to 33 percent of consumers in the coming year, the Fed is anxious to develop technology that reaches these groups. Connecting to the unbanked and underbanked through technology they already access may be an easy transition.

Security and Other Concerns

However, there are several serious concerns that must be considered when switching to a completely mobile banking system. Security is the greatest obstacle. Hackers will undoubtedly be drawn to such a system, attempting to access mobile accounts to drain electronic funds.

Lost or stolen mobile phones would become a huge liability, especially if an account was linked directly to the device. Immediate access to funds could leave mobile bankers at the mercy of whoever found their phone. Additionally, records of payments and spending will be entirely digital. This leaves the possibility that a virus or other computer glitch could wipe every trace of funds away. Still, researchers hope to develop a secure mobile application that will serve to aid consumers.